Software licensing to reduce taxes?

[redchili]

Hi community, just want to see if I'm understanding this correctly as it's quite a complex topic:

If my hypothetical USA software business (gaming & animation. no crypto or gambling) generates $100K revenue /mo (Profits $50K, Costs $50K) could I create a 2nd company (like in Singapore) to buy the software licensing and charge my USA company $50K in fees monthly? Essentially the USA company would have $0 profits and the international company (ie Singapore) would pay the lower tax rates? Is this correct or am I way off?

Thank you

 

[Sols]

There is a lot to consider (transfer pricing, tax residence of the Singapore/foreign company) but what you propose is possible, although it might not be entirely realistic to get it down to zero tax for the company and it might end up costing more than your tax savings.

However, you still haven't solved for how to pay yourself. You'd need to make sure that what you end up paying yourself is taxable as capital gains.

If you just transfer funds from Singapore to yourself, you might still be looking at full federal and state income tax, just as you would if you had just operated the business as an LLC. So then you've spent time and money on setting up a foreign company just to end up on the same taxable income as before, or more if the Singapore company qualifies as tax resident in the US and is liable for tax as an S or C corp.

Speak with a tax advisory firm with international reach.

 

[neweraoffshore]

The big question here is. Are you an US passport holder? If yes (that's what i guess), you only have very less options. Option 1 is to hide the money with a nominee structure and you don't declare the "fringe benefit" which you get by spending for private stuff from the nominee company card, or option 2, you leave the country and denounce your US passport.
Not declaring fringe benefit is of course illegal, but the chances of getting caught are literally 0%. In the worst case they can only get you for a small amount of transactions. But you need to look for a provider with real nominees who can answer the phone in case IRS wants to speak to the "owner" of the company to confirm that card usage was valid. Best is to be on the payroll from this company, too, to have evidence to be a valid holder of the company card.